User Account

All Pages

What is warren cost of equity capital

Assignment Help Financial Management
Reference no: EM132578174

Suppose stock in Warren Corporation has a beta of 0.70. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Warren's last dividend was €1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for €45 per share. Warren has a target debt-equity ratio of 0.50. Its cost of debt is 9 percent before taxes. Its tax rate is 21 percent.

Instructions:

a. What is Warren's cost of equity capital? Assume that you equally believe in the CAPM approach and the dividend growth model.

b. What is Warren's WACC?

c. Warren is seeking €30 million for a new project. The necessary funds will have to be raised externally. Warren's flotation costs for selling debt and equity are 2 percent and 16 percent, respectively. If flotation costs are considered, what is the true cost of the new project?

d. Under what circumstances would it be appropriate for Warren Corporation to use different costs of capital for its different operating divisions? What are two techniques you could use to develop a rough estimate for each division's cost of capital?

Reference no: EM132578174

Questions Cloud

Public sector and private sector communication styles : Discuss some differences between public sector and private sector communication styles and approaches?
Determine the cost to produce heaters : A company finds it can produce 5 heaters for $ 1900, while producing 10 heaters costs $ 3100. Determine the cost to produce 20 heaters
Detail communication : Which you detail communication needs and practices with considerations of: Cultural and ethical considerations for public sector communications
What would be his taxable gain on the sale : The alternate valuation date was not elected. If Hugh sells the Atom Corporation stock for $11,900, what would be his taxable gain on the sale
What is warren cost of equity capital : What is Warren's cost of equity capital? Assume that you equally believe in the CAPM approach and the dividend growth model.
Differences between commercial banks-investment banks : What are some similarities and differences between commercial banks, investment banks, and insurance companies?
What is depreciation expense per month : Residual value of 2000. Yacht was used 6 months of the year. What is depreciation expense per month based on straight line
What is the npv for buying the new system : If the tax rate is 25 percent and the requred return is 15 percent, what is the NPV for buying the new system?
Determine dividends per share and external financing : Indus Company expects with some degree of certainty to generate the following net income and to have the following capital expenditures

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd